The week in Small Caps: Esports Mogul Android app, American Patriot ups oil production, Jervois seeks Tanzanian nickel
WEEKLY MARKET REPORT
Amidst all of the political shenanigans, the Australian share market managed a modest rise for the first time in four sessions on Friday.
While some of the rise might have been a small relief rally to welcome Scott Morrison, following some solid declines during the week the ASX200 still finished the week down 1.4 per cent or 91 points.
The Australia dollar also saluted the news that Scott Morrison was the next Prime Minister, has won the ballot to become Australia’s next prime minister.
The victory of the former Treasurer saw the dollar jump sharply higher to US72.85c after trading between US72.39c and US72.506c before the vote was taken.
Relief for telco investors
While the telco sector took a bit of a rest on Friday, it enjoyed a week of high drama with the announcement that Australia’s TPG Telecom (ASX: TPM) was in merger talks with Vodafone’s local business, a tie-up that could reduce competition by combining TPG’s soon-to-be-launched mobile network with the smallest of the three existing players.
TPG, which is one of the most aggressive players in broadband, sent shivers up the spines of the major telco players in April of last year when it paid $1.3 billion to buy spectrum to build its own mobile network.
Vodafone Australia, which is a 50:50 joint venture between Hutchison Telecommunications (ASX: HTA) and Vodafone, is the third-biggest mobile player by subscriber numbers after Telstra and Optus.
A tie-up between the two could provide a much faster and cheaper entry into the mobile network market for TPG, which already offers mobile services on a virtual network on Vodafone’s infrastructure.
TPG’s shares initially soared 20 percent to a near-two-year high on Wednesday, their biggest daily gain since 2009.
While the talks are still described as non-binding and “exploratory”, the news was greeted by investors who see it as a way for TPG to save money compared to spending billions of dollars to roll out its own network infrastructure.
It was also good news for Telstra (ASX: TLS) and Optus investors, with any merger meaning the status quo of three mobile networks would be maintained rather than an extra network which would provide extra competition.
A touch of bling
Afterpay Touch (ASX: APT) continued its impressive performance, up 6.1 per cent or $1.14 to $19.69 after successfully raising $117 million to fund a UK acquisition that was announced with its earnings result.
Most other ASX sectors were higher, led by Healthcare and Consumer Discretionary companies.
However, banks continued their weeklong decline.
Westpac (ASX: WBC) led the retreat, giving up 2.4 per cent or 69c to $27.66 in response to its underwhelming quarterly update.
Westpac’s key Net Interest Margin (NIM) fell from 2.17 per cent to 2.06 per cent, which is the lowest for a few years.
Medibank (ASX: MPL) closed down 2.2 per cent or 7c at $3.10 after the health insurer reported a FY18 profit of $445.1m, a decrease of 1 per cent which was below market expectations.
Small cap stock action
The Small Cap index bucked the trend of the larger indices in the ASX 200 and All Ords, pushing higher into the green to end Friday at 2,896.6 – up 2.24% for the week.
Small cap stocks that had noteworthy news out during this week included:
Esports Mogul (ASX: ESH)
Esports Mogul expanded its market reach this week after announcing it will release its Mogul app for Android devices in December.
The first version will include some of the existing features of Esports Mogul’s Mogul Arena and is designed to be a companion to the existing Mogul Arena platform.
Initially, users will be able access player and team profiles, tournament information and game results.
Version two is due to debut in March and will facilitate native mobile eSports tournaments and expand access to the Mogul Arena’s Esports Elite feature.
The news follows the world’s largest eSports tournament, The International, that kicked off this week, with the tournament attracting a record US$24.8 million prize pool.
Next month, thousands of gamers and supporters will head to Victoria as part of the state’s Melbourne eSports Open.
The event is expected to attract thousands from across Australia and overseas to watch teams play games like League of Legends and Counterstrike Global Offensive.
Melbourne-based ORDER is one team that will be competing and has a partnership with Esports Mogul to build Australia’s eSports community.
Commenting on the Melbourne eSports Open, Esports Mogul managing director Gernot Abl told Small Caps, “High-profile public events like this help to raise awareness of gaming in general and as a new spectator sport that offers something for everyone.”
Poseidon Nickel (ASX: POS)
Poseidon Nickel is a step closer to restarting its nickel sulphide operations after reporting Andrew Forrest had backed a A$5.8 million placement via his entity Squadron Resources.
Mr Forrest’s entity will also sub-underwrite a $68.8 million entitlement offer, with Petra Capital the primary underwriter.
Poseidon hopes to issue 1,375 million new shares, with company directors planning to subscribe for more than $2 million-worth in the offer.
Once both the placement and offer have been completed, Poseidon will have $74.6 million in cash that will provide enough funding to resume operations at the Silver Swan and Black Swan mines and plant, with a recent feasibility study putting the restart costs for the assets at $56.7 million.
American Patriot (ASX: AOW)
American Patriot Oil & Gas has resumed production at its Goose Creek and CWS Aceite assets in onshore Texas.
The wells are now generating 22 barrels of oil per day, providing American Patriot with US$32,592 in revenue for sold production so far.
American Patriot anticipates a further US$40,000 by the end of the month as production increases to 40bopd.
The company has access to another 50 wells and plans to be producing more than 100bopd from the assets by the end of the year.
Additionally, American Patriot hopes to add to its production potential with the addition of several new oil and gas assets.
Over the Wire Holdings (ASX: OTW)
IT and telecommunications company Over the Wire Holdings was one of several to record a large increase to its 2018 fully year revenue, after posting a 57% rise in full year revenue to $53.56 million.
This compared to the previous year which brought in $34.22 million.
The higher revenue lifted Over the Wire’s after tax net profit 54% to $5.53 million, compared to $3.60 million in 2017.
Over the Wire said the higher revenue and profit were a result of organic growth and acquisitions made throughout the year.
Northern Cobalt (ASX: N27)
Northern Cobalt is advancing its Wollogorang cobalt project further after announcing it had begun drilling the high priority targets identified from its large shallow aircore campaign.
As part of the high priority program, Northern Cobalt will drill 21 holes at targets where previous drilling to 5m depths returned cobalt mineralisation above 100ppm.
Northern Cobalt managing director Michael Schwarz said the company hoped to discover Stanton-style deposits from this campaign.
Stanton is the flagship deposit at Wollogorang and has a resource of 942,000t grading 0.13% cobalt, 0.06% nickel and 0.12% copper.
Mr Schwarz has previously likened the mineralisation found at Wollogorang to that found in the Democratic Republic of Congo which produces 60% of the world’s cobalt. However, Wollogorang has minimal sovereign risk due to its location in a mining friendly jurisdiction in the Northern Territory, compared to high risks identified in the DRC.
ImpediMed (ASX: IPD)
ImpediMed has published the first of a series of educational seminars on the PREVENT trial it is undertaking, which is evaluating the accuracy and benefit of its L-Dex technology on early diagnosis of sub-clinical lymphoedema in patients that have previously had breast cancer, which is one of the most common causes of the disease.
The initial findings are that L-Dex measurements are of “potential clinical benefit” to patients.
Additionally, ImpediMed researchers have recommended “an aggressive measurement protocol” which would involve a quarterly L-Dex assessment.
L-Dex can measure the amounts of extracellular fluid in patients’ limbs and works by taking accurate real-time readings to enable early diagnosis and treatment of lymphedema, which can cause pain, reduce mobility and bodily function, while also causing recurrent infections.
Alligator Energy (ASX: AGE)
It was a busy week for Alligator Energy as the company firmed up the nickel and cobalt potential at is Piedmont project in northern Italy, while preparing to start drilling its TCC4 uranium prospect in the Northern Territory’s Alligator River province.
On Thursday, Alligator reported it identified up to 2.42% nickel and 0.19% cobalt from 10 grab samples taken from an initial reconnaissance visit at Piedmont. The company also boosted its land in the region with the application of two new tenements which are known to contain historical workings and mineralisation.
The same day, Alligator announced it had completed its $1.75 million placement which gives it the funding required to start drilling the TCC4 uranium prospect.
Alligator plans to begin the 3,000m drilling campaign by the end of the month.
Bass Metals (ASX: BSM)
Bass Metals achieved another milestone this week at its wholly-owned Graphmada large flake mine in Madagascar.
The company reported its first sales of graphite concentrate from the recently refurbished operation.
This latest achievement follows Bass hitting nameplate capacity of 6,000tpa at its recommissioned mine at the beginning of the month.
Bass said it was now close to establishing positive cash flow from the operation.
ClearVue Technologies (ASX: CPV)
ClearVue Technologies collared New Zealand and Australian certification for its advanced glazing technology.
The AS/NZS 4284:2008 standard certification opens the door for ClearVue to begin selling its solar curtain wall system throughout both regions.
ClearVue’s glass curtain wall system covers the outer building and helps keep the weather out, while allowing maximum natural light.
The system also counteracts building sway and helps it withstand greater wind loads and provides greater thermal efficiency for cost-effective heating and lighting.
Galileo Mining (ASX: GAL)
Galileo Mining pleased investors this week with news it had identified targets at its Fraser Range project that are similar in nature to Independence Group’s (ASX: IGO) world-class Nova ore body.
Detailed gravity surveys at the project’s Nightmarch prospect has found magnetic and gravity anomalies that indicate the potential for intrusive rocks akin to those at Nova and the nearby Silver Knight nickel-cobalt-copper deposit.
Results from the surveys reveal the area is potentially highly prospective at shallow depths, with modelling suggesting target rocks can be found 36m below surface.
Galileo managing director Brad Underwood said the Fraser Range region was developing into a significant mineralised province bolstered by the known Nova and Silver Knight deposits.
Jervois Mining (ASX: JRV)
Jervois Mining hopes to get its hands on the undeveloped Kabanga nickel-cobalt project in Tanzania.
Kabanga is believed to be one of the world’s most attractive undeveloped nickel sulphide deposits and came up for grabs after the Tanzanian Government cancelled its retention licence.
The Glencore-Barrick Gold joint venture previously advanced the project in the late 1990s to mid-2000s, but placed the project on care and maintenance when nickel prices plunged.
Glencore and Barrick have submitted a prospecting licence application to replace the cancelled retention licence.
Jervois has also submitted a permit application for the project, with the company’s management team highly familiar with Kabanga and believed well-positioned to bring it into production.
EML Payments (ASX: EML)
EML Payments reported a 200% surge in net profit to $4.8 million for the financial year ending June 2018.
The profit was underpinned by a 23% rise in revenue to $71 million, which was driven by an increase in gross debt volume to $6.75 billion.
Helping the revenue growth was the company’s expansion into six Nordic and Baltic countries during the period.
The company also continued to invest in advancing its proprietary processing platforms that can support Apple Pay, Google Pay and Samsung Pay.
IPO tracker
For readers interested in the latest ASX debutants and upcoming IPOs, Small Caps has you covered.
The latest stocks to muscle their way onto the ASX this week include:
Nickel Mines (ASX: NIC)
Nickel Mines was the first IPO to hit the ASX this week after raising $200 million at $0.35 per share, giving it a market cap of about $485 million.
It was one the year’s biggest IPOs, with the company aiming to become a low-cost nickel laterite producer to generate nickel pig iron for the stainless steel sector.
The stock began trading on the 20 August 2018 at $0.30 before slipping to a A$0.26 intraday low. It bounced back to end its first day at $0.28 – a 20% dip on its $0.35 IPO price.
By Friday, Nickel Mines had regained some ground and finished its maiden trading week at $0.305.
Nickel Mines holds 80% of the Hengjaya Meralindo nickel mine in Indonesia, and plans to use its IPO proceeds to secure a 60% interest in a nearby stainless steel plant and expand the mine.
Kleos Space (ASX: KSS)
Second off the rank this week was Kleos Space, which raised $11 million via the issue of 55 million CHESS Depository Interest securities (CDIs) at $0.20 each.
Kleo is a spin-out from UK-based Magna Parva, which develops engineering solutions for the space industry, including the European Space Agency.
The ASX-debutant will use its IPO funds to launch its first satellite system in mid-2019 to target the $41 billion global intelligence, surveillance and reconnaissance market.
With a full satellite constellation, Kleos hopes to provide near real-time global observation services.
The company started its first day on the ASX on Friday morning at $0.145, before climbing to reach $0.16 by the end of the day.
Kingwest Resources (ASX: KWR)
In the resources space, Kingwest Resources launched onto the ASX Friday after raising $5 million in an oversubscribed IPO.
The newcomer has built up a portfolio of tenements covering 935.77sq km in WA between Leonora, Laverton and Leinster.
The company will be exploring for gold, silver, cobalt, copper and nickel. However, gold will be the immediate focus with one of the projects in the portfolio, Crawford, hosting a maiden resource of 3.34Mt grading 0.96g/t gold for 104,000 ounces of contained gold.
Kingwest debuted on the ASX at $0.195 before dipping to $0.18 in early afternoon. It ended its first day of trade at $0.185.
The week ahead
The coming week promises little in the way of new economic data, with private sector credit, building approvals and business investment the most interesting.
On Tuesday the weekly reading on consumer confidence is released by Roy Morgan and ANZ.
Following on from the Jackson Hole central bankers’ annual economic policy symposium over the weekend, US economic growth, trade, inflation, consumer confidence and business surveys will be followed closely.
We are also up for the last week in the Australian reporting season with a host of new profit results to examine.
Some of the companies to watch out for include: AUB Group, Japara Healthcare, Reliance Worldwide, Spark Infrastructure, Sirtex Medical, Accent Group, Northern Star Resources, Austal, Caltex Australia, Boral, Autosports Group, Cabcharge Australia, Independence Group, Regis Resources, Oneview Healthcare, SpeedCast International, Virgin Australia, Westfield Unibail-Rodamco, Atlas Arteria, Gateway Lifetsyle Group, Galaxy Resources, Perpetual, Perseus Mining, Ramsay Health Care, Sandfire Resources, GTN, Harvey Norman, Metals X, NEXTDC, Orocobre and Sino Gas & Energy.